Tourism, dairy good for deficit

ASB chief economist Nick Tuffley.

New Zealand's current account deficit is expected to continue gently narrowing as a percentage of gross domestic product (GDP), thanks to strong tourism and ongoing improvements in dairy prices.

The country's current account balance turned to a deficit in the three months ended June, as a drop in services more than offset a pickup in exports.

The deficit was $945 million from a revised first-quarter surplus of $1.18 billion, Statistics New Zealand said.

The annual deficit was $7.4billion, or 2.9% of gross domestic product, from a revised deficit of $7.8 billion, or 3.1%, in the year ended March 31. A Reuters survey had forecast a gap amounting to 2.7% of GDP.

The GDP figures will be released this morning.

ASB chief economist Nick Tuffley said much of the widening in the seasonally-adjusted deficit was due to increased spending by New Zealanders abroad.

Not only were travel numbers high, but spending while out of the country also rose, lifting services imports and narrowing the services surplus compared to the previous quarter.

''Even so, the annual services surplus still increased. Inbound tourism remains supportive, with spending holding up around record highs.''

The biggest quarter movement was in the services balance, which fell to $587 million in the latest quarter from $2.89 billion three months earlier, as services exports dropped to $4.8billion from $6.9 billion.

That largely reflected a drop in travel to $2.98 billion from $4.8 billion in the first quarter, a period that captured much of the peak season for tourists. Travel exports in both the first and second quarters were ahead of the same periods last year.

The goods balance rose to $875 million in actual terms in the latest quarter from $592 million three months earlier as goods exports rose to $13.1billion from $12.1 billion and goods imports rose to $12.3 billion from $11.5 billion.

The financial account balance fell to $1.49 billion from $1.98billion. New Zealand investment abroad fell to $933million from $2.8 billion, while foreign investment in New Zealand declined to $2.4billion from $4.79 billion.

Mr Tuffley expected little major movement in the annual current account balance in the immediate future.

In the short-term, he expected the services balance to remain strong on the back of continued tourism growth. Dairy prices had also started to recover.

On the other side of the ledger, strengthening domestic demand and rebounding oil prices would lift import expenditure.

Earthquake reinsurance inflows of $579 million were down on the first quarter but returned to levels from 2014 and early 2015.

With only an estimated $1.1billion of outstanding claims, the influence of reinsurance flows on the New Zealand dollar was on the wane, Mr Tuffley said.